Stephanie Armour
USA Today
A price reduction sale tops the sale sign of an existing home on the market in a south Denver suburb. By David Zalubowski, AP
Sales of existing homes plunged unexpectedly in January to the lowest level since 1997, a sign that even bargain-barrel prices aren’t doing enough to draw home buyers into the dismal housing market.
Existing home sales, which had been predicted to rise, tumbled 5.3% to an annual rate of 4.49 million in January, down from 4.74 million properties in December, according to a Wednesday report by the National Association of Realtors.
And in the second largest drop ever, home prices sank nearly 14% to a median of $170,300 in January from $199,800 a year ago.
Several factors are behind the surprising slump:
•Foreclosure moratoriums. Many lenders —— including mortgage titans Fannie Mae and Freddie Mac —— have instituted moratoriums on foreclosures, which means sales of foreclosed homes have stalled.
“It’s somewhat of a surprise,” says Brian Bethune, with IHS Global Insight, adding that the most recent report on pending home sales showed an increase. “But existing home sales are driven by foreclosures, and moratoriums on foreclosures will reduce the numbers. That was what had been driving some of the gains.”
•Housing rescue plan. Wary buyers were holding off purchases until after the announcement of the Obama administration’s housing rescue plan. The home price and sales data from NAR captures activity before last week’s announcement by Obama.
The $75 billion plan, among other things, will include an up to $8,000 tax credit for first-time home buyers that many economists expect will help spur sales later this year.
“The economic situation deteriorated due to the jobless rate and consumer confidence down,” says Lawrence Yun, chief economist with the National Association of Realtors. “But serious buyers wanted to know what was going to be in the stimulus bill before they signed a contract. They were waiting.”
•Interest rate volatility. So many issues are in flux, including weekly volatility in interest rates and uncertainty about the effect of Obama’s housing affordability plan, and indicators such as home sales are reflecting the ongoing uncertainty over the housing market.
Mortgage applications dropped 15.1% for the week ending Feb. 20 and refinancing activity also declined 19%, according to a Wednesday report by the Mortgage Bankers Association. The average interest rate for 30-year fixed-rate mortgages increased to 5.07% from 4.99% the week earlier.
Most recently, home sales had been on the rise. The last report by NAR found existing home sales rose 6.5% to 4.74 mill ion properties in December from 4.45 million in November.
But home prices toppled at a record pace in December, based on a report Tuesday by S&P/Case Shiller index. They dropped 18.5% in December compared to a year earlier — the biggest decline in more than 20 years.